Funding Rates: Who Pays to Hold the Trade

Every perpetual future carries a funding rate. It is a small payment between longs and shorts, made every few hours, and it is one of the most useful numbers in crypto. Funding tells you which side of the market is paying to hold its position and how much it is paying. The daily issue quotes it for every coin it covers.

Why funding exists

A perpetual future never expires, so nothing forces its price to meet the spot price on a set date. Funding does that job instead. When the perp trades above spot, the funding rate turns positive and longs pay shorts. That makes being long more expensive and being short more rewarding, which pulls the perp back towards spot. When the perp trades below spot, the rate turns negative and shorts pay longs.

Funding is paid on the full size of the position, not on the margin. Say you hold a 10,000 dollar long and funding is 0.03% per 8 hours. You pay 3 dollars at each settlement, three times a day: 9 dollars a day. Small on one day, but it adds up on a position held for weeks.

The default rate

Exchanges build funding from two parts: the premium of the perp over spot, and a fixed interest component. When the perp sits close to spot, the formula settles on a default. On Binance that default is 0.01% per 8 hours. It is the closest thing funding has to neutral.

A coin sitting at 0.01% for days on end is not crowded. It is simply calm.

Annualising: one scale for every venue

Raw funding rates are hard to compare. Binance settles most coins every 8 hours but some every 4 hours or every hour. Hyperliquid settles every hour, so its rates look tiny until you scale them up. The fix is to annualise: multiply the rate by the number of settlements in a year.

• A year has 8,760 hours. An 8-hour coin settles 8,760 / 8 = 1,095 times a year.
• The 0.01% default on an 8-hour coin is 0.01% x 1,095 = 10.95% a year.
• A 4-hour coin settles 2,190 times a year, so a rate of 0.01% per 4 hours annualises to 21.9%: twice the 8-hour default from the same raw number.
• An hourly venue settles 8,760 times a year, so an hourly rate is multiplied by 8,760.

The daily issue always shows funding annualised, so +10.95% means "the default, nothing unusual". Read anything well above it as longs paying a real premium, and anything negative as shorts paying to hold.

Where a coin trades on both Binance and Hyperliquid, the desk also averages the two rates, weighted by each venue's open interest, so the bigger market counts for more.

Percentiles: is this funding unusual?

A funding rate means little without context. Funding that would be extreme for bitcoin can be ordinary for a small, volatile coin. So the issue ranks today's Binance funding against that coin's own Binance history, as a percentile:

• For the month: today's reading against the last 30 days of settlements (90 settlements on an 8-hour coin).
• For the year: today's reading against the last twelve months.

Funding in its 95th percentile for the month has been higher only 5% of the time in the last 30 days. Funding in its 5th percentile has rarely been lower. When many readings are tied, for example a coin parked at the default for a week, the ties are split down the middle. That stops a calm default reading from being ranked as the highest of the month.

The desk only quotes a percentile when it has a full window of history. A coin listed last week does not get a monthly percentile, because a ranking against a few days would mislead you.

What extreme funding tells you

High positive funding means longs are paying heavily to stay long. That can last for weeks in a strong uptrend, so it is not a sell signal by itself. What it does tell you is that the long side is expensive and possibly crowded. If price stalls, those longs are paying to hold a position that is not working, and some of them will close.

Deeply negative funding is the mirror image: shorts are paying to stay short. If price lifts, they face the same pressure in reverse.

Funding becomes far more useful next to open interest. Expensive funding with open interest flat is a few traders paying up. Expensive funding with open interest surging is a crowd forming. The desk refuses to join a crowd like that, and the rule it uses is covered in crowded trades and liquidations.

Key takeaways

• Funding is paid between traders on the full position size; positive means longs pay shorts.
• Annualise to compare venues: the 0.01% per 8 hours default equals +10.95% a year.
• Percentiles against the coin's own month and year tell you whether today's reading is unusual.
• Extreme funding is a warning about crowding, strongest when open interest is rising too.